Why your car loan is for $9,000 more than the sales price

Dear Driving for Dollars,
I was just going over the paperwork from a car I bought a few days ago, and I noticed that my car loan is for an amount that is WAY higher than the price listed for the car -- about $9,000 higher!

The paperwork lists the sales price as about $5,000 higher than I negotiated and then there is another $4,000 on top of that. I called the dealership, and they told me that the extra amount includes the "packages" on the car plus extras, including insurance, license plates and taxes.

The salesman was high pressure and now I'm worried I was taken advantage of. How do I know if these charges are all legit?
-- Jose

PeopleImages/DigitalVision/Getty Images

Dear Jose,
Buying a car can be confusing, not just in choosing your car, but in the process as well. It is the 2nd most expensive purchase next to a home you'll probably ever make, yet the process is usually done in a weekend.

It's not entirely clear to me whether the higher price of your loan is "legit," as you put it, but let me explain some of the ways that car loans end up for amounts higher than the price of the car.

To review, get out your contract and look for a sheet that provides a line-by-line itemization of each charge that brings the total to the amount that is $9,000 higher than what you thought you were paying. You should have received this itemization (in many states it is required by law). If you didn't, call the dealership and ask for a copy.

The final cost of a car doesn't just include the price of the car, but also the destination fee (if it is a new car). That's the fee charged by the automaker to deliver the car to its destination. You also should see the sales tax on the purchase, and the state's fees for the car's title and registration. These fees are all required by the state and are collected when you purchase a car through the dealer.

Dealership fees added to sale price

Car dealers also usually add other charges to the final sale price that are associated with their dealership, such as for preparing documents or the car itself or other administrative tasks. These fees are set by the dealer (though the maximum amounts are sometimes regulated by the state) and they are negotiable.

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Dealers may also add fees for accessories they install or for extended warranties or service plans. These also are negotiable. To learn more about the ins and outs of these extra charges when you buy a car, read Don't pay unnecessary dealer fees.

I can see from the explanation that the dealership gave you, that the state-required fees and some dealer charges are part of the reason that your loan cost was higher. You did mention that they charged you for "insurance," which if you heard correctly, does not seem right. Even if insurance is required by your state to register a new car, you should only have needed to provide proof that you had active insurance.

Previous car loan may have been rolled in

Another way that car loans end up substantially higher than the sale price is when the auto that is taken by the dealer in a trade still has an active car loan attached to it. If you traded in a car where you owed more than it was worth, the difference may have been rolled into your current loan, possibly amounting to thousands of dollars.

You mentioned that the sale price of the car on the paperwork you have is about $5,000 more than you thought you were paying and that they dealership told you the extra charges were due to "packages." It sounds like either you initially looked at 1 car that did not have a lot of bells and whistles, and that you purchased the same model with more features, which are often grouped together by the automaker in what they call packages.

Leather upholstery, a sunroof, higher-end audio system, different wheels and many other features could account for this. Another possibility is that you purchased a package from the dealer that could include dealer-installed accessories, an extended warranty or a pre-paid service plan. Again, check your itemized list that should have been provided with the sale.

Any combination of these factors could easily lead to a sale price increase in many thousands of dollars but, unfortunately, unless you find that the dealership did something that was against the law, you may not have any recourse to reverse the sale.

Contact the dealer

If you feel you were taken advantage of, you can try contacting the dealership general manager or owner, explain your situation and see what they might do for you. If you get nowhere, you can contact the attorney general's office for your state, which advocates for consumers for free, and see if they can help. It is possible there might be an investigation on the dealership for their business practices and the attorney general might be able to help.

Whatever you do, act quickly, because the longer you own the car and the more miles you put on it, the fewer options you will have for getting out of this situation.

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Tara Baukus Mello writes Bankrate's cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world.

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